Finance Ministry not for cut in excise duty on petrol, diesel

The government had raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.

India has the highest retail prices of petrol and diesel among South Asian nations as taxes account for half of the pump rates. (Representational)

The finance ministry is not in favour of cutting excise duty on petrol and diesel to provide relief to the common man from spike in their prices but wants states to cut sales tax or VAT on fuel, a senior official said on Monday. Petrol price on Monday hit a 55-month high of Rs 74.50 a litre, while diesel rates touched a record Rs 65.75, renewing calls for a cut in excise duty to ease the burden on consumers.

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The finance ministry official said however that a reduction in excise duty, which makes up for a quarter of retail fuel price, is not advisable if the government is to stick to the path of reducing budgetary deficit. “Excise duty cut would be a political call, but is not advisable if we have to stick to the fiscal deficit glide path outlined in Budget,” he said. The government is targeting reducing fiscal deficit to 3.3 per cent of the gross domestic product (GDP) in the current fiscal, from 3.5 per cent last fiscal. “Every rupee cut of excise on fuel will result in a loss of Rs 13,000 crore to the government,” the official said, adding that the oil ministry has not yet officially asked for a cut in fuel excise duty.

The official said states should cut VAT on fuel to ease the burden on the consumer. “Fiscal considerations are far higher than one or two rupee price impact on consumers,” he said. “One or two rupee increase doesn’t impact inflation.” The central government levies Rs 19.48 a litre of excise duty on petrol and Rs 15.33 per litre on diesel. State sales tax or VAT vary from state to state. In Delhi, VAT on petrol is Rs 15.84 and Rs 9.68 a litre on diesel.

While the government is hoping that geopolitical tension would ease and US shale oil would help ease oil prices, it is not in favour of tinkering with the autonomy given to oil PSUs to revise rates daily in line with the cost.”Once we have decided on daily price revision, it is not a good thing to tinker with that either through excise or by asking oil marketing companies to absorb prices,” the official said. State-owned oil firms, which have been since June last year revising auto fuel prices daily, today raised petrol and diesel rates by 10 paise per litre each in Delhi, according to a price notification.The hike, necessitated due to firming international oil prices, comes on the back of a 32 paise increase in rates of petrol effected over the last two days.

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Petrol in the national capital now costs Rs 74.50 a litre, the highest since September 14, 2013, when rates had hit Rs 76.06. Diesel price at Rs 65.75 is the highest ever. India has the highest retail prices of petrol and diesel among South Asian nations as taxes account for half of the pump rates. The government had raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.

Subsequent to that excise duty reduction, the Centre had asked states to also lower VAT, but just four of them – Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh – reduced rates while others including BJP-ruled ones ignored the call. In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped government’s excise mop up more than double to Rs 2,42,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.